Sections
Key Terms
Key Terms
- bank run
- when depositors race to the bank to withdraw their deposits for fear that otherwise they would be lost
- basic quantity equation of money
- money supply × velocity = nominal GDP
- central bank
- institution that conducts a nation’s monetary policy and regulates its banking system
- contractionary monetary policy
- a monetary policy that reduces the supply of money and loans
- countercyclical
- moving in the opposite direction of the business cycle of economic downturns and upswings
- deposit insurance
- an insurance system that makes sure depositors in a bank do not lose their money, even if the bank goes bankrupt
- discount rate
- the interest rate charged by the central bank on the loans that it gives to other commercial banks
- excess reserves
- reserves banks hold that exceed the legally mandated limit
- expansionary monetary policy
- a monetary policy that increases the supply of money and the quantity of loans
- federal funds rate
- the interest rate at which one bank lends funds to another bank overnight
- inflation targeting
- a rule that the central bank is required to focus only on keeping inflation low
- lender of last resort
- an institution that provides short-term emergency loans in conditions of financial crisis
- loose monetary policy
- see expansionary monetary policy
- open market operations
- the central bank selling or buying Treasury bonds to influence the quantity of money and the level of interest rates
- quantitative easing (QE)
- the purchase of long-term government and private mortgage–backed securities by central banks to make credit available in hopes of stimulating aggregate demand
- reserve requirement
- the percentage amount of its total deposits that a bank is legally obligated to to either hold as cash in their vault or deposit with the central bank
- tight monetary policy
- see contractionary monetary policy
- velocity
- the speed with which money circulates through the economy; calculated as the nominal GDP divided by the money supply